BlackRock, the world's largest asset manager, submitted a registration statement with the U.S. Securities and Exchange Commission on October 19 for the iShares Bitcoin Managed Protection ETF, which would trade under the ticker PBIT. The proposed fund seeks to provide bitcoin exposure with built-in downside protection, departing from the structure of traditional spot bitcoin ETFs.
Unlike conventional bitcoin ETFs that directly hold the cryptocurrency, PBIT would use options contracts and fixed-income securities to achieve its investment objective. The fund would seek gains linked to the iShares Bitcoin Trust ETF (IBIT) or similar bitcoin-linked assets while attempting to reduce exposure to sharp market declines.
How the Protection Strategy Works
The fund would employ three overlapping sets of options contracts, known as tranches, that start in different months. Each tranche would combine purchased call options—which provide the right to buy an asset at a predetermined price—with sold calls that cap gains above a specified strike price.
Call options would generally be purchased with strike prices approximately 10% below the reference asset's starting value. This structure would initially target limiting losses to approximately 10% of that asset's starting value for each tranche, before expenses. However, BlackRock notes this protection would not guarantee a 10% maximum loss for shareholders, as thresholds could change and losses measured from a higher market value could exceed the initial limit.
The strategy would also include cash, money market funds, short-term government obligations, and investment-grade fixed-income securities. Interest income from these holdings could help cover options costs and offset some losses.
Trade-Offs for Investors
Selling call options would generate payments to help finance the protective strategy, but would restrict returns during bitcoin rallies. PBIT could therefore underperform bitcoin during rising markets, with volatility and trading expenses potentially weakening its downside protection.
Shareholders could still lose some or all of their investment. The fund would allocate at least 80% of net assets, plus investment borrowings, to bitcoin exposure or its protection strategy under its stated investment policy.
Regulatory Timeline
The proposed registration statement would become effective 75 days after October 19, pending SEC approval. A preliminary prospectus prohibits sales until the registration becomes effective. BlackRock Fund Advisors would manage the ETF, with the filing flagging risks involving options liquidity, interest rates, and counterparty exposure.
BlackRock previously filed for the iShares Bitcoin Premium Income ETF (BITA), which launched on June 16. While BITA emphasizes income generation through covered calls, PBIT would focus on downside protection.
